Chapter-1

1.1 Introduction

Bangladesh is one of the largest Muslim Countries in the world. The people of this country
are deeply committed to lead an Islamic way of life which is based on the principle of Holy
Quran and the Sunnah. The Al-Arafah Islami Bank which is established on June 18, 1995 is
the true reflection of this inner urge of its people which started functioning with effect from
September 27, 1995. It is committed to conduct all Financial Activities banking and
Investment activities on the basis of interest free profit and loss sharing system. In doing so it
has unveiled a new horizon and unheard in new silver lining of hope towards materializing a
long-cherished dream of the people Bangladesh for doing their Banking transaction in line
with what is prescribed by Islam. With the active cooperation and participation of Islamic
Development Bank (IDB) and some other Islamic Banks, financial institutions and
government bodies, Al-Arafah Islami Bank Limited has new earned the unique position of a
leading private commercial bank in Bangladesh. Al-Arafah Isalmi Bank Limited has made a
positive contribution towards the socio-economic development of the country by opening 46
branches in which 16 authorized dealer throughout the county.

1.2 Objectives

General Objectives:

The main purpose of the study to know the overall financial operational performance of the
Al-Arafah Islami Bank Ltd. and fulfilling the practical requirements of the BBA program .
The objective of Islamic banking is not only to earn profit but also to do good and welfare to
the people. Islam upholds the concept that money, income and property belong to Allah and
this wealth is to be used for the God of the society.

Specific Objectives:

 To observe the General Banking & foreign exchange operation of AIBL and their
services review the techniques used by the bank to make it lucrative.
 An analysis and discussion of General Banking & foreign exchange services of
the bank.
 To evaluate of the present performance of the bank regarding General Banking &
1
 foreign exchange.
 To search the problems of this branch of AIBL.
 Determining the drawbacks of the existing foreign exchange system.
 Recommending some guidelines to improve the effectiveness of foreign exchange
services.

1.3 Methodology

To make the report more meaningful and presentable, two sources of data and information
have been used widely these are Primary Data and Secondary Data. Both primary and
secondary data sources were used to generate the report. But Most of the information
collected from secondary sources.

Primary sources of data:

 Face to face conversation with the bank officers &staffs.

 Conversation with the clients.

 Different' manuals of AIBL

Secondary sources of data:

 Procedure manual published by the Al-Arafah Islami BankLtd.

 Files and documents of the branch.

 Annual reports of Al-Arafah Islami BankLimited

 Different papers of Al-Arafah Islami Bank.

 DSE library

 Bangladesh Bank Journals

1.4 Scope of the Report

As I was working in the Al-Arafah Islami Bank Limited, Dhanmondi Branch, I got the
opportunity to learn different part of banking system. My supervisor divided my parts so that
I can get the opportunity to work in General Banking & Foreign Exchange division to
analysis the whole financial activities.
2
1.5 Limitation of the Report

The work is mainly based on interpreting primary data. There is insufficiency of Secondary
data, but for the purpose of the betterment of the present position of the bank’s accounting
procedure, collecting, interpreting and integrating primary data has been utilized.

Though a very comprehensive and a well-organized report has been tried to be produced but
there are still some limitations present here.

Since the time allocated for internship program is twelve weeks, it may have a coercive effect
on this study lowering the actual value and standard.

 The communication gap among the different personnel because of excessive

workload.
 Inexperience about practical work.
 Because of sensitiveness, the department does not want to disclose information about
the financial situation, which leads to do report.
 Lack of accessibility to respondents.
 The bank authorities are so busy that they could not give me sufficient time for
discussion about Accounting Procedure and its problems.
 Dealing with some ambivalent information.
 Problems for lack of my research work
 Clients are not always interested to spend time for interviews.
 The main constraint was insufficiency of information, which is highly required for the
study. It was unable to provide some formatted documents and data for the study.
 Since the bank personnel were very busy, they failed to give me enough time to
complete the report.
 The clients were very busy. So, they were unable to give me much time for interview.
 Such a study carried out by me for the first time. So, inexperience is one of the main
factors that constituted the limitation of the study.

3
 Chapter-2

Al-Arafah Islami
Bank Limited: An Overview

2.1 Background of Al-Arafah Islami Bank Ltd.

Al-Arafah Islami Bank Limited has been established and functioning with effect from 27th
September 1995 as a schedules commercial Bank of Bangladesh strictly based on Islamic
Shariah principles. Islamic Banking has been operating in more than 70 countries of the
world
including Bangladesh through 218 institutions. It has in the meantime established its
beneficial
approach and efficiency on operation.

Islamic Banking system has its inborn inner strength as follows:

 It gives a fixed percentage of investment income to the depositors. Therefore, in

order
to give better rate of profit its investment portfolio is managed properly so that better
investment income can be earned and paid to the depositors.

 The Management cost is to be borne out of a fixed portion of investment income and
service charge earned by the bank. Therefore, efficient customer services and better
portfolio management are required to be ensured by the management.

 The depositors can calculate their interest income to be earned from conventional
banks and thereby make expenditure with consequential inflation which the depositors
of Islamic Bank cannot do as they cannot foresee profit income.

 Since Islami Bank invests its fund in different Islamic Modes of Finance particularly
in
Mudaraba and Musharaka and also accepts deposits on Mudaraba principle
Entrepreneurship as well as sense of belongingness to the Bank is developed.

 In buying &selling modes of financing like Murabaha, Bai-Muajjal, Izara, end uses is
ensured strictly as per principles of Islamic Shariah. Thus funds cannot be diverted for
other purpose.

 Islami Bank attaches importance to human resources development. As such the

employees are trained discreetly, in this regard on which the conventional Bank does
not give much importance.

4
2.2 Company Profile

Name of The Company Al-Arafah Islami Bank Limited

Nature of Business A public limited company registered in
Bangladesh on 18th June 1995, under the companies
Act 1994 and enlisted in
Dhaka Stock Exchange Ltd. & Chittagong Stock
Exchange Ltd.

Registered Office Head Office Peoples Insurance Building(6th – 9th

Floor) 36, Dilkusha Commercial Area Dhaka-1100,
Bangladesh.

SWIFT Code ALAR BD IS (means Branch Code)

E-Mail [email protected]

Webpage: www.al-arafahbank.com

2.3 Mission & Vision of AIBL

Mission:

 Achieving the satisfaction of Almighty Allah both here & hereafter.

 Proliferation of Shariah Based Banking Practices.
 Quality financial services adopting the latest technology.
 Fast and efficient customer service.
 Maintaining high standard of business ethics
 Balanced growth.
 Steady & competitive return on shareholders' equity.
 Innovative banking at a competitive price.
 Attract and retain quality human resources.
 Extending competitive compensation packages to the employees.
 Firm commitment to the growth of national economy.
 Involving more in Micro and SME financing.

Vision:

5
  To be a pioneer in Islami Banking in Bangladesh and contribute significantly to the
growth of the national economy
2.4 Value & Commitments

Value

 AIBL values are based upon the fundamental principles that define our culture
and are brought life in our attitude and behavior. It is their values that make us
unique and seen from five basic principle:

 Excellence: The market is which AIBL operate is becoming increasing competitive

and their customers now have abundance of choice.

 Integrity: AIBL success depends upon trust. Their customers are society in
general expect us to process and steadfastly to high moral principle and
profession standard.

 Customer focus: AIBL need to understand fully the needs of their customers and
to adapt our product and service to meet these.

 Meritocracy: AIBL believes in giving opportunities and advantage to its employee

son the basic of their ability.

 Progressiveness: AIBL believes in the achievement of society through the

adoption of enlightened working practice innovative new product and process a
sprite of enterprise.

Commitments

 Theirs is a customer focused modern Islamic Banking with sound and steady growth
in both deposit mobilization and making quality Investment to keep our position intact
as a leading Islami Bank in Bangladesh.

 To deliver financial services with the touch of our heart to retail, small and medium
scale enterprises, as well as corporate clients through our branches across the country.

 To always align our business initiatives with the ever changing industrial and business
needs of the clients.

 To deliver product and services that creates value for the customers.

6
2.5 Objective of AIBL

Al-Arafah Islami Bank Limited is Islamic Banking institutions that operates with the
objectives implement and materialize the economic and financial principles of Islamic in the
banking arena. The objectives of AIBL are not only to earn profit, but also to do good and
welfare to the people. The main objectives of AIBL are listed below-

 To establish participatory banking instead of banking on debtor creditor relationship.

 To invest through different modes permitted under Islamic Shariah.
 To accepts deposits on profit loss sharing basis.
 To establish as welfare-oriented banking system.
 To extend co-operation to the poor, the helpless and the low income group for their
economic up liftmen.
 To play a vital role in human development and employment generation.
 To contribute towards balances growth and development of the country through
investment operations particularly in the less developed areas.
 To contribute in achieving the ultimate goal of Islamic economic system.
 To conduct interest free banking.

7
2.6 Organogram of AIBL

8
2.7 Financial Performance of the Bank

Particulars 2017 2018 2019 2020 2021 Growth%

Income Statement
Investment Income 20491.03 24956.81 28811.65 26331.28 23446.01 (10.96)
Profit paid on Deposit 11784.20 16256.61 18604.42 16556.64 13072.79 (21.04)
Net Investment Income 8,706.83 8700.20 10207.23 9774.64 10373.22 6.12
Non Investment Income 3557.36 3769.39 4037.57 3655.46 4250.17 16.27
Non Investment 5308.42 6160.70 6384.18 6742.33 7129.25 5.74
Expenses
Net Non Investment
Income (1751.06) (2391.31) (2346.61) (3086.87) (2879.08) (8.85)
Profit Before Tax & 6955.77 6308.89 7860.62 6687.77 7494.14 12.06
Provision
Provision For Investment 1354.89 2177.98 2867.66 1887.90 2655.58 40.66
Profit Before Tax 5600.88 4130.91 4992.96 4799.87 4838.56 0.81
Provision For Tax 2431.38 1674.11 2556.33 2228.06 2712.12 21.73
(including Deferred
Tax)
Profit After Tax 3169.05 2456.80 2427.63 2571.81 2126.44 (17.32)
Balance Sheet
Authorized Capital 15000.00 15000.00 15000.00 15000.00 15000.00 -
Paid up Capital 9943.06 10440.22 10659.02 10649.02 10649.02 -
Reserve Funds & Other
Reserves 8556.96 9336.62 10318.64 11418.96 11733.35 2.75
Shareholders’ Equity 22520.68 23483.22 24148.24 24455.85 25900.33 1.75
(Capital & Reserve)
Deposits 244806.26 266205.48 297241.81 326023.41 353287.97 8.36
Investment 235905.23 261874.13 288486.02 308620.66 336890.72 9.16
Investment in Shares &
Securities 10145.49 12214.67 16170.52 21563.67 30156.14 39.85
Fixed Assets 3260.38 4494.61 4351.93 5833.88 5470.27 (6.23)
Total Assets (Excluding
off-balance sheet items) 319255.29 338456.30 381051.81 418298.65 462687.05 10.61
Foreign Exchange
Business
Import Business 156700.00 168573.80 171611.70 169378.90 261556.10 54.43
Export Business 104540.00 114481.90 108967.10 104939.40 135786.90 29.40
Guarantee Business 6443.41 7096.02 8274.25 10511.21 13673.41 30.08
Inward Foreign 20700.00 36917.20 37713.40 43807.00 52662.10 20.61
Remittance
Capital Measures
Core Capital (Tier-l) 21459.85 22379.93 22817.41 23930.30 29301.30 22.44
Supplementary Capital 5488.97 10078.56 9735.77 15327.20 14359.58 (6.31)
(Tier-ll)
Tier-l Capital Ratio 10.40 10.12 10.22 9.59 10.37 0.78
Tier-ll Capital Ratio 2.66 4.56 4.36 6.14 5.08 (1.06)
Total Capital 26948.82 32458.69 32553.18 39258.09 43660.88 11.21
Total Capital Ratio 13.06 14.68 14.58 15.74 15.46 (0.28)
Investment Quality

9
Volume of Non-
Performing investment 9921.51 12690.72 13100.41 11769.58 16566.84 40.76
% of NPIs to Total
Investment 4.10 4-79 4.82 3.80 4.81 26.58
Provision for
Unclassified Investment 1723.04 1891.00 2157.28 2787.10 3084.10 10.66
Provision for Classified
Investment 3096.15 3946.09 6022.02 6436.96 8173.23 23.01
Provision for Off
Balance sheet Exposures 570.42 689.80 778.50 935.50 1093.40 16.88
Share Information
Number of Shares
Outstanding 994306428 104402175 106902185 106902185 1,064,902,185 -
0
Earning per Share 3.15 2.35 2.28 2.41 1.96 (0.45)
(Taka)
Book Value per Share 20.88 20.80 21.13 22.35 22.73 .38
(Taka)
Market Price per Share 24.10 19.90 17.20 22.20 26.60 4.40
(Taka)
Price Earning Ratio 7.64 8.48 7.56 9.22 13.57 4.35
(Times)
Price Equity Ratio 1.15 0.96 0.81 0.9.99 1.17 0.18
(Times)
Dividend per Share
Cash Dividend (%) 15.00 15.00 13.00 15.00 15.00 -
Bonus Share 5.00 2.00 - - - -
Operating Performance
Ratio
Net Profit Margin% 3.87 3.42 3.73 3.45 3.26 (0.19)
Investment /Deposit 89.95 89.87 88.93 86.92 87.57 0.65
Ratio
Return on Equity (ROE) 14.07 10.46 14.07 10.10 8.21 (1.98)
%
Return on Assets (ROA) 0.99 0.73 0.64 0.61 0.46 (0.16)
%
Cost of fund % 7.50 8.70 9.02 7.50 6.00 (1.50)
Cost /Income ratio in
operating business (%) 43.28 49.41 44.28 50.20 48..75 (1.45)
Other Information
Number of Branch 154 168 182 184 201 9.24
Number of Employees 3446 3682 3795 3866 4247 9.86
Number of 30386 25793 24276 22142 19146 (13.53)
Shareholders

2.8 Services provided by AIBL

The importance of mobilizations of savings for the economic development of our country
can hardly be over emphasized. We considered savings and deposits as lifeblood of the
bank. More the deposit, greater is the strength of the bank. The bank intends to launch
various new savings scheme with prospect of higher return duly supported by a well-
orchestrated system of customer services. The bank would cater to the credit needs of
10
individuals as well as corporate clients. Initial it will emphasize on trade finance, which
would be short term and self-liquidating in nature. Considering the importance of foreign
trade in our national life, financing and handling of export & import business and also
handling of foreign remittance business would be given top most priority. Moreover, the
bank operates all of its activities under the rules and regulations of Islamic Shariah. The
services provided by the Al-Arafah Islami Bank Ltd. are given bellow:

1.General banking
 Different accounts open, issues of DD. TT. PO,
 Clearing,

 FD, Different Scheme etc.

2.Credit/advance
 SOD General loan
 House building loan
 Lease finance
 Hire purchase
 CC hypo
 Staff loan
 CCSetc.

3.Foreign exchange
 Export

 Import

 Remittance

2.9 Modes of Investment

1. Bai-Murabaha:

11
Bai-Murabaha may be define as a contract between a buyer and a seller under which the
seller sells certain specific goods (permissible under Islamic Shariah and the law of the land )
to buyer at a cost plus agreed profit payable in cash or on any fixed future date in lump sum
or by installments. The profit marked up may be fixed in lump sum or in percentage of the
cost price of the goods.

2. Mudaraba:

Moradabad refers to a contract between two parties in which one party supplies capital to the
other party for the carrying on some trade on the condition that the resulting profits are
distributed in a mutually agreed proportion and loss is borne by the provider of the capital.

3. Musharaka:

The word ‘musharaka’ is derived from the Arabic word ‘Sharikah’. That means partnership.
It is a partnership between two or more parties who trade woth a join capital. The profit is to
be dividends into a known and fixed percentage. All the partners including the bank have the
right to participate in the management.

4. Bai-Muajjal:

A contract in which the seller allows the buyer to pay the price of a commodity at a future
date in lamp sum or installment (which may be higher than the spot price) this is a sort of
credit sale for profit. Bai-muajjal is useful in financing requirements of industry and
agriculture.

5. Bai- Salam:

Bai-Salam is a contract in which the buyer pays the agreed price of a commodity in advance
and the commodity is delivered to the buyer at a specified future price. This is useful
mechanism for agricultural products and industrial product.

12
 Chapter-3

Conceptual Framework Of Bank

3.1 What is Bank?

A bank is a financial institution that is licensed to accept checking and savings deposits and
make loans. Banks also provide related services such as individual retirement accounts
(IRAs), certificates of deposit (CDs), currency exchange, and safe deposit boxes.

3.2 History Of Banking?

Ancient
The concept of banking may have begun in the times of ancient Assyria and Babylonia
with merchants  offering loans of grain as collateral  within a barter system. Lenders
in ancient Greece  and during the Roman Empire  added two important innovations: they
accepted deposit and changed money.Archaeology for this period in Iran, Ancient
China and India also shows evidence of money lending

Medieval
The present era of banking can be traced to medieval and early Renaissance Italy, to the rich
cities in the center and north like Florence, Lucca, Siena, Venice and Genoa.
The Bardi and Peruzzi families dominated banking in 14th-century Florence, establishing
branches in many other parts of Europe. Giovanni di Bicci de' Medici set up one of the most
famous Italian banks, the Medici Bank, in 1397. The Republic of Genoa founded the earliest-
known state deposit bank, Banco di San Giorgio (Bank of St. George), in 1407 at Genoa,
Italy.

Early modern

Fractional reserve banking and the issue of banknotes emerged in the 17th and 18th centuries.
Merchants started to store their gold with the goldsmiths of London, who possessed
private vaults, and who charged a fee for that service. In exchange for each deposit of
precious metal, the goldsmiths issued receipts certifying the quantity and purity of the metal
they held as a bailee ; these receipts could not be assigned, only the original depositor could
collect the stored goods.
Gradually the goldsmiths began to lend money out on behalf of the depositor, and promissory
notes (which evolved into banknotes) were issued for money deposited as a loan to the
goldsmith. Thus by the 19th century we find in ordinary cases of deposits of money with
banking corporations, or bankers, the transaction amounts to a mere loan or mutuum, and the
bank is to restore, not the same money, but an equivalent sum, whenever it is demanded and
money, when paid into a bank, ceases altogether to be the money of the principal (see Parker
v. Marchant, 1 Phillips 360); it is then the money of the banker, who is bound to return an
equivalent by paying a similar sum to that deposited with him when he is asked for it.  The
goldsmith paid interest on deposits. Since the promissory notes were payable on demand, and
13
the advances (loans) to the goldsmith's customers were repayable over a longer time-period,
this was an early form of fractional reserve banking. The promissory notes developed into an
assignable instrument which could circulate as a safe and convenient form of money backed
by the goldsmith's promise to pay] allowing goldsmiths to advance loans with little risk
of default. Thus the goldsmiths of London became the forerunners of banking by creating
new money based on credit.

     
The Bank of England originated the permanent issue of banknotes in 1695. The Royal Bank
of Scotland established the first overdraft facility in 1728. By the beginning of the 19th
century Lubbock's Bank had established a bankers' clearing house in London to allow
multiple banks to clear transactions. The  pioneered international finance on a large
scale, financing the purchase of shares in the Suez canal for the British government in 1875.

3.3 Bangladesh Bank

On 7 April 1972, after the Independence War and the eventual independence of Bangladesh,

the Government of Bangladesh passed the Bangladesh Bank Order , 1972 (P.O. No. 127 of
1972), reorganising the Dhaka branch of the State Bank of Pakistan as Bangladesh Bank, the
country's central bank and apex regulatory body for the country's monetary and financial
system.
The 1972 Mujib government pursued a pro-socialist agenda. In 1972, the government decided
to nationalise all banks to channel funds to the public sector and to prioritise credit to those
sectors that sought to reconstruct the war-torn country – mainly industry and agriculture.
However, government control of the wrong sectors prevented these banks from functioning
well. This was compounded by the fact that loans were handed out to the public sector
without commercial considerations; banks had poor capital lease, provided poor customer
service and lacked all market-based monetary instruments. Because loans were given out
without commercial considerations, and because they took a long time to call a non-
performing loan, and once they did, recovery under the erstwhile judicial system was so
expensive, loan recovery was abysmally poor. While the government made a point of
intervening everywhere, it did not set up a proper regulatory system to diagnose such
problems and correct them. Hence, banking concepts like profitability and liquidity were
alien to bank managers, and capital adequacy took a backseat
In 1982, the first reform program was initiated, wherein the government denationalised two
of the six nationalised commercial banks and permitted private local banks to compete in the
banking sector. In 1986, a  Commission National on Money, Banking and Credit was
appointed to deal with the problems of the banking sector, and a number of steps were taken
for the recovery targets for the nationalised commercial banks and development financial
institutions and prohibiting defaulters from getting new loans. Yet the efficiency of the
banking sector could not be improved.
The Financial Sector Adjustment Credit (FSAC) and Financial Sector Reform Programme
(FSRP) were formed in 1990, upon contracts with the World Bank. These programs sought to
remove government distortions and lessen the financial repression. Policies made use of the
McKinnon-Shaw hypothesis, which stated that removing distortions augments efficiency in
the credit market and increases competition. The policies therefore involved banks providing
loans on a commercial basis, enhancing bank efficiency and limiting government control to
monetary policy only. FSRP forced banks to have a minimum capital adequacy, to
14
systematically classify loans and to implement modern computerised systems, including
those that handle accounting. It forced the central bank to free up interest rates, revise
financial laws and increase supervision in the credit market. The government also developed
the capital market, which was also performing poorly.
FSRP expired in 1996. Afterwards, the Government of Bangladesh formed a Bank Reform
Committee (BRC), whose recommendations were largely unaddressed by the then-
government.
At present it has ten offices located at Motijheel, Sadarghat, Chittagong, Khulna, Bogra,
Rajshahi, Sylhet, Barisal, Rangpur and Mymensingh in Bangladesh; total manpower stood at
5807 (officials 3981, subordinate staff 1826) as of 31 March 2015.

3.4 Functions of Bangladesh Bank

The Bangladesh Bank performs all the functions that a central bank in any country is
expected to perform. Such functions include maintaining price stability through economic
and monetary policy measures, managing the country's foreign exchange and gold reserve,
and regulating the banking sector of the country. Like all other central banks, Bangladesh
Bank is both the government's banker and the banker's bank, a lender of last resort".
Bangladesh Bank, like most other central banks, exercises a monopoly over the issue of
currency and banknotes. Except for the one, two, and five taka notes and coins which are the
responsibility of the Ministry of Finance of the Government of Bangladesh. The major
functional areas include :
 Formulation and implementation of monetary and credit policies.

 Regulation and supervision of banks and non-bank financial institutions, promotion

and development of domestic financial markets.
 Management of the country's international reserves.
 Issuance of currency notes.
 Regulation and supervision of the payment system.
 Acting as banker to the government .
 Money laundering prevention.
 Collection and furnishing of credit information.
 Implementation of the Foreign Exchange Regulation Act.
 Managing a deposit insurance scheme .

3.5 Types of Bank In Bangladesh

After the independence, banking industry in Bangladesh started its journey with 6
Nationalized commercialized banks, 3 State owned Specialized banks and 9 Foreign Banks.
In the 1980's banking industry achieved significant expansion with the entrance of private
banks. Now, banks in Bangladesh are primarily of two types:

 Scheduled Banks:

15
 The banks that remain in the list of banks maintained under the Bangladesh Bank
Order, 1972.
 Non-Scheduled Banks:
The banks which are established for special and definite objective and operate under
any act but are not Scheduled Banks. These banks cannot perform all functions of
scheduled banks.
Scheduled Bank

State-owned Commercial Bank

means the commercial banks owned by the Recipient which propose to make or have
made a subgrant to a Dealer and which have entered into a Participating Bank Agree-
ment with the Recipient, and "State-owned Commercial Bank" means any one of them.
There are s which are fully or majorly owned by the Government of Bangladesh.
Specialized Banks (SDBs):
The specialized banks are defined as those banks that are banking operations that serve a
specific type of economic activity, such as industrial activity or agricultural or real estate,
under the resolutions of their establishment. Specialized bank does not have to accept
demand deposits of the main aspects of its activities.

Private Commercial Bank

Private commercial bank means the commercial banks other than commercial banks
owned by the Recipient which propose to make or have made a Subgrant to a Dealer and
which have entered into a Participating Bank Agreement with BI, and
"Private Commercial Bank" means any one of them.
1. There are 43 private commercial banks which are majorly owned by individuals/the
private entities. PCBs can be categorized into two groups:
2.
a)Conventional PCBs: 33 conventional PCBs are now operating in the industry. They
perform the banking functions in conventional fashion i.e interest based operations.
b)Islami Shariah based PCBs: There are 10 Islami Shariah based PCBs in Bangladesh and
they execute banking activities according to Islami Shariah based principles i.e. Profit-Loss
Sharing (PLS) mod.

Foreign Commercial Bank

Foreign Commercial Bank are those banks that are incorporated abroad, later they opened
their branch in Bangladesh. There are 9 FCBs operating in Bangladesh.

16
3.6 Some Banking Terms

Account
A type of financial property or financial obligation that is held and owned under account
holder name. When someone open a financial account—whether it’s a checking account,
savings account, CD or money market account—he/she have certain rights and
responsibilities as an account holder.

Joint account
 An account with two or more owners that own the account equally, with the same rights and
obligations of using the account.

Savings account
A savings account may have been Someone’s first experience with the banking industry.
He/she have a number of options for where to stow savings safely, both at banks and credit
unions.
Annual Percentage Rate
 The total annualized cost of a loan. When someone borrow money, whether it’s via a credit
card, car loan or another loan, the lender is required to disclose the APR, so borrower
understand the full cost of borrowing the money.

Annual Percentage Yield( APY)

 The annual yield earned on a deposit account, such as a savings, money market or CD
account. Savers can use APY as one of several factors to help determine which savings
options are the best.

Available balance
The amount of money someone have in his bank account that is available to spend or
withdraw. If someone have recently deposited a check or made purchases, those transactions
may still be marked as pending and may not be included in your available balance.

Check
 A type of financial instrument that instructs the check writer’s bank to make a payment to
the recipient indicated on the check. Some people write paper checks and other people use
their bank’s online bill pay feature to issue electronically generated checks.

Checking account
 checking account, sometimes referred to simply as a bank account, is a home base for
making financial transactions. The account can be interest-bearing, or non-interest-bearing,
depending on the bank or credit union.

Compound interest
When someone save money in an interest-earning account, such as a savings account or
CD, compound interest is the powerful financial effect that helps your savings grow over

17
time. With compound interest, savings multiply over time by earning interest on top of the
principal plus interest, year after year.

Credit

 Credit generally refers to ability to borrow—the willingness of banks and other lenders to
extend a loan to someone.

Debit card 
This is a payment method that’s connected to the checking account. Debit cards work
similarly to credit cards and can be accepted at the same points of sale, but the money that
A/C holder spend gets deducted from checking account balance.
Direct deposit
A payment method where people can sign up to have paychecks automatically deposited into
their account, without having to endorse and deposit a check. Many banks offer reduced fees
to customers who have recurring direct deposits. 

Endorsement
To cash or deposit a check, Account holder must sign his/her name on the back. This is
known as an endorsement.

Fraudulent charges
Many banks have strong protections against fraudulent transactions. If a suspicious
transaction occurs on account, bank may prevent the payment from going through until they
talk with A/C holder to confirm that the purchase is valid.

Grace period
A certain amount of time when a borrower can delay making a payment on a loan or credit
card account without paying a penalty or incurring interest charges.

Investments
 Investments are financial assets that are purchased and sold by investors, with the goal of
earning a return on investment (ROI). 

Maturity date
This is the date of expiration for the contractual obligation of a financial instrument.

Overdraft
 Something that occurs when someone make a purchase with his/her debit card or write a
check for an amount that exceeds his/her checking account’s available balance.

Solvency
When banks have enough money to cover potential losses. Banks are expected to maintain a
sufficient level of capital to remain solvent and avoid failure.
18
 Chapter-4
Experience During internship

4.1General banking Activities

 4.1.1 General Banking Functions at Dhanmondi Branch

Financial institution/ intermediary that mediates or stands between ultimate borrowers and
ultimate lenders is knows as banking financial institution. Banks perform this function in two
ways- taking deposits from various areas in different forms and lending that accumulated
amount of money to the potential investors in other different forms. General banking
department aids in taking deposits and simultaneously provides some ancillaries services.

General banking is the front-side banking service department. It provides those customers
who come frequently and those customers who come one time in banking for enjoying
ancillary services. In some general banking activities, there is no relation between banker and
customers who will take only one service form bank. On the other hand, there are some
customers with who bank are doing its business frequently. It is an important department for
all banks because it provides day-to-day service to the customers. Front Desk is the important
for general banking. Customers give their deposits and meet their demand for cash by
honoring cheques. Besides this a customer opens new accounts, remit funds, issues bank
drafts and pay orders etc. There are various sections in this department, which are as follows:
–

· Cash Section

· Accounts Opening Section

· Cheque Clearing Section

· Remittance Section

4.1.2. Account Opening

Account opening section is an important factor for banks because customer is the main source
of bank. Selection of customer is another important factor. Bank’s success and failure largely
depends on their customers. If customer is not good then may create fraud and other problems
by their account with bank and thus destroy goodwill of banks. Therefore, bank must be

19
conscious in selecting its customer. For this reason Al-Arafah Islami Bank Ltd. keep key
information system.

4.1.3 Accounts Opening Process

Recently, Bangladesh Bank has been declared, designed and enforced a unique format of
form for every banks. This format should hold the important document in a same manner and
process

respectively for different kind of accounts. Al-Arafah Islami Bank Ltd. is not different from
this practice. Accounts opening process can be as follows:

Step 1

 Receiving filled up application in bank’s prescribed form mentioning what type of

account is desired to be opened.
 The form is filled up by the applicant himself/ herself
 Two copies of passport size photographs from individual are taken and in case of
firms photographs of all partners are taken
 Officer are taken information from customer by key information system

Step 2

· Applications must submit required documents

· Applications must sign specimen signature sheet and give mandate

· Introducer’s signature and accounts number-verified by legal officer

Step 3

· Filling & signing up KYC or Know Your Customer Form

· Filling & signing up Owner Information Form

Step 4

· Authorized Officer accepts the application

Step 5

· Minimum balance is deposited-only cash is accepted

Step 6

· Account is opened and a cherub book and pay-in-slip book is given

4.2.4 Information Collected to Open Account

Accounts opening information that is collected by the Al-Arafah Islami Bank Ltd. varies for
each type of account.
20
· Individual

Name

? Present and Permanent Address

? Date of birth and age

? Nationality

? Tax Information Number (TIN- if available )

? Passport or certificate provided by the employer

? Photograph of the account holder

? One photograph of the nominee duly attested by the account holder.

? Nominee declaration form

? Money laundering leaflet

· Partnership Firm

? All the required information mentioned for Individual Accounts; along with,

? Copy of Partnership Dead

? Mandate from the partners is essential – indicating who will operate the account

· Limited Company

? All the required information mentioned for Individual Accounts; along with,

? Certificate of Incorporation

? Copy of Memorandum and Article of Association

? Certificate of Commencement

? Copy of Resolution of the Board of Directors

4.1.5 Dormant Account

If any account is inoperative for more than one year is called dormant account. To operate
these accounts manager permission is necessary.

4.1.6 Transfer of Account

An account can be transferred from branch to branch and only from the same bank.
Following steps are considered for this purpose:

21
· Application in written to the Manager of the account maintaining branch

· Manager sends a request to the manager of the desired branch of depositors

· Sends original Account opening application and specimen signature sheet with the balance
remained in the account at he sent Manager’s request

· New account is opened at desired

angladesh.

4.1.7 Cheque Clearing

Bank receives all kinds of cheque in favor of the client for clearing. When cheque is received
it is necessary to endorse it and cross it specially.

Types of Cheque Explanation Clearing Process

Inward Clearing Cheque received from Party’s A/c…Dr.Al-Arafah Islami Bank Ltd.
Cheque the clearing house of Al- General A/c…Cr.
Arafah Islami Bank Ltd.

OBC(Outward Cheques of other branch These cheques are directly sent to the
Bills for of Al-Arafah Islami respective branch and request them to sent
Collection) Bank Ltd. within its IBCA. When it comes, then customer’s A/c is
clearing house area. credited for the cheque.

Clearing Cheque Cheques another bank These cheques are sent to clearing house via
within Al-Arafah Islami Dhanmondi Branch. When drawee bank honor
Bank Ltd. clearing house the cheques, then the account of cheque
area. depositors are credited.

Outward Cheques for another If any branch of Al-Arafah Islami Bank Ltd.
Clearing bankoutside the clearing exists within the clearing house area of drawee
area banks then Al-Arafah Islami Bank Ltd. send
the cheque to that branch of Al-Arafah Islami
Bank Ltd. and sends IBCA to it.

Inward Bills From other branch of Al- These cheques are settled by IBCA, i.e.
forCollection Arafah Islami Bank Ltd. debiting depositor’s account and crediting
(IBC) sender’s branch account

From another bank These cheques are settled debiting depositor’s

outside the clearing account and sending DD, MT, TT in favor of
house sender’s bank.

22
4.1.8 Clearing Department
Cheques clearing section of Al-Arafah Islami Bank Ltd. receives cheque, demand drafts and
pay orders of their clients. Upon the receipt of the instrument the cheque clearing section
examines three types of payment modules.

· Whether the Paying Bank within Dhaka City: The cheques clearing section of Al-Arafah
Islami Bank Ltd., Dhanmondi Branch sends Inter Branch Debit Advice (IBDA) to the head
office on the receiving day of the instruments. The main branch takes those instruments to the
clearing house on the following day. If the instruments are dishonored, Head Office of Al-
Arafah Islami Bank Ltd. sends IBDA to the Al-Arafah Islami Bank Ltd., Dhanmond Branch.

· Whether the Paying Bank of their own branch: The cheque clearing section of Al-Arafah
Islami Bank Ltd., Dhanmond Branch sends Outward Bills for Collection (OBC) to the
concerned paying branch to get Inter Branch Credit Advice (IBCA) from the paying branch.
If the paying branch dishonors the instrument, the paying branch returns it to the Al-Arafah
Islami Bank Ltd., Dhanmond Branch describing why the instrument is dishonored.

4.1.9 Types of Cheque Collected by Clearing Department:

· Local Bills Collection Cheques (LBC)

 Local bills collection cheques are those cheques, which are collected and paid by two
different branches of a bank situated in the same city.

 Outward Bills Collection Cheque (OBC)

OBC cheques are those cheques, which are collected and paid by two different branches of
same or different bank situated in the outstation.

·Transfer Cheque

Transfer Cheques are those cheques, which are collected and paid by the same branch of Al-
Arafah Islami Bank Ltd.

4.1.10 Clearing House

Clearing House is an arrangement under which member banks agree to meet, through their
representatives, at an appointed time and place to deliver instruments drawn on the other and
in exchange, to receive instruments drawn on them. The net amount payable or receivable as
the case may be, is settled through an account kept with the controlling bank

23
4.1.11Types of Clearing
· Outward Clearing

Outward clearing means when a particular branch receives instruments drawn on the other
bank within the clearing zone and those instruments for collection through the clearing
arrangement is considered ad outward clearing for that particular branch.

· Inward Clearing

 When a particular branch receives instruments, which drawn on them and sent by other
member bank for collection are treated as inward clearing.

4.1.14 Remittance
Sending money from one place to another through some charges is called remittance. To pa
or receive money of customers in the form of remittance from one place to another, from one
person to another inside and outside the national boundary is an earning source of every bank.
Dhanmondi Branch, Al-Arafah Islami Bank Ltd. operates both the foreign and local
remittance to serve it’s customers. In addition, this service is an important part of country’s
payment system. Through this service, people can transfer their funds from one place to
another place very quickly.

4.1.15 Foreign Remittance

Foreign remittance is to send money of customers from one place to another, from one person
to another outside the national boundary. Though Dhanmondi Branch, Al-Arafah Islami Bank
Ltd. is AD branch, it can able to serve the customers by receiving and paying their incoming
foreign remittance in the form of local currency. Foreign remittance is received by the bank
via some internationally authorized agents. There are two medium of agent for foreign
remittance at Dhanmondi Branch, Al-Arafah Islami Bank Ltd.; they are:

Moneygram

Eldorado

4.1.16 Local Remittance

Sending money of customers in the form of remittance from one place to another, from one
person to another inside and outside the national boundary is another earning source of every
bank. As being a non-ad branch Dhanmondi Branch of Al-Arafah Islami Bank Ltd. only
operates the local remittance to serve the customers. In addition, this service is an important
part of country’s payment system. Through this service, people can transfer their funds from
one place to another place very quickly. There are several techniques for collecting local
remittance. These are:

· Demand Draft (DD)

24
Pay Order

· Telegraphic Transfer (TT)

4.2.1 Foreign Exchange department

Foreign exchange can simply be defined as a process of conversion of one currency into
another. In ordinary sense “Foreign Exchange” means Foreign Currency, which refers to the
rate of exchange the price of one unit of foreign exchange in termFs of another currency. But
in its complete sense, foreign exchange means the mechanism or the media used and the rate
at which these media are exchange with another.

Foreign Exchange department of Al-Arafah Islami Bank Ltd. is one of the most important of
all departments. This department divided into three parts, the first one is the Import
Department the second part is the Export Department & the third part is Foreign Remittance
Department.

Following flow chart depicts the multifarious functions usually done by the FED:

25
4.2.2 Import Procedure
To import, a person should be competent to be and importer. According to
Import and Export Control Act, 1950, the Office of Chief Controller of Import
and Export provides the registration (IRC) to the importer. In an international
business environment, buyers and sellers are generally unknown to each other.
So seller of goods always seeks security for the payment of his exported goods.
Bank gives export guarantee that it will pay for the goods on behalf of the buyer
if the buyer does not pay. This guarantee is called Letter of Credit. Thus the
contract between importer and exporter is given a legal shape by the banker by
'Letter of Credit.

4.2.3 Functions of Import Section

The form IMP contains the followings—

 Name and address of the Authorizeddealers.

 Amount of remittance to be permitted (i.e./Camount)
 LCA form no. Date and value in Taka.
 Description of goods.
 Invoice value in foreign currency, (i.e./Camount)
 Country oforigin.
 Port ofshipment.
 Name of steamer /Airline
 Port ofimportation.
 Indenter’s name andaddress.
 Indenter's registration number with CCI & E and
BangladeshBank.
 Full name and address of theapplicant.

4.2.3 Letter of Credit

A letter of credit is a letter issued by a bank (known as the opening or the issuing bank)
at the instance of its customer (known as the opener) addressed to a person (beneficiary)
undertaking that the bills drawn by the beneficiary will be duly honored by it (opening
26
bank) provided certain conditions mentioned in the letter gave been complied with.
4.2.5Importer’s Application for L/C Limit Margin

To have an import L/C limit, an importer submits an application to the Department of Al-
Arafah Islami Bank Ltd. furnishing the following information:

1        Full particulars of bank account.

2        Nature of business.

3        Required amount of limit.

4        Payment terms and conditions.

5        Goods to be imported.

6        Offered security.

7        Repayment schedule.

Now if the officer thinks the application to open an L/C in not fit, the following entries are
given to realize the L/C, Charges, Postage and L/C margin.

4.2.6 Parties Involved in a Letter of Credit

Importer Who applies for L/C

Issuing Bank It is the bank which opens/issues a L/C on behalf of the

importer.
Confirming Bank It is the bank, which adds its confirmation to the credit and it, is
done at the request of issuing bank. Confirming bank may or
may not be advising bank.
Advising or Notifying It is the bank through which the L/C is advised to the exporters.
Bank This bank is actually situated in exporter's country. It may also
assume the role of confirming and / or negotiating bank
depending upon the condition of the credit.
Negotiating Bank It is the bank, which negotiates the bill and pays the amount of
the beneficiary- The advising bank and the negotiating bank
may or may not be the same. Sometimes it can also be
confirming bank.
Accepting Bank It is the bank on which the bill will be drawn (as per condition
of the credit). Usually it is the issuing bank.
Reimbursing Bank It is the bank, which would reimburse the negotiating bank
after getting payment - instructions from issuing bank.

27
The following papers are required when opening a new L/C

1. Certificate of Board of Directors.

2. Resolution of Commencement.
3. Resolution of Board of Directors.
4. Confidential report to be obtained from their previous bank.
5. Report/ Inquiry to be obtained from CIB of Bank.
6. Credit Report to be obtained from correspondent bank, internationally reputed agency
introspects to the supplier.
7. LRA to be made in case of big liability.
8. Valid Import Registration Certificate (IRC).
9. Trade License.
10. TIN Certificate.
11. VAT Certificate.
12. Three (3) copies declaration by the importer that they have paid/ submitted return of
income tax of proceeding last year.
13. Membership Certificate of Chamber of Commerce Industry.
14. Membership Certificate BGMEA (Incase of Garment Ind.)
15. Banded warehouse license (Incase of Export Oriented Industry).
16. LCA From.
17. Insurance cover note.
18. Proforma Invoice/ Indent.
19. Application for opening of L/C duly billed in and signed.
20. IMP form duly signed.
21. Memorandum and Article of Association of the company.
22. Certificate of incorporation with RJSC.

4.2.7 Documents Used in Foreign Trade

Bill of exchange

A Bill of Exchange is an instruction by the exporter (drawer) to the importer or the

importer’s bank to make payment of the amount mentioned in it. A Bill of Exchange is a
negotiable instrument and is governed by the Negotiable Instruments Act. The bill under
a letter of credit may be drawn in the issuing bank or another drawee bank but not on the
importer. If the credit nevertheless calls for a bill on the applicant, the bank will consider
such bills as additional documents. The various types of bills are:

D/A and D/P bills

A usance bill may be on D/A or D/P terms. If it is on D/a terms (Documents against
acceptance), the collecting bank is to deliver the documents to the drawee on the acceptance
of the bill by him. The payment will be made by the drawee on the due date of the bill. For
the period from the date of acceptance to the date of payment, the bank remains unsecured. If
it is a D/P bill (Documents against payment), the documents will be delivered to the drawee
only on payment until which time they are retained by the bank. Therefore, the bank retains
control over goods until payment is received.
28
Inland and foreign bills

A bill, which is drawn in Bangladesh and made payable in or drawn upon any person resident
in Bangladesh, is an inland bill. Thus, an inland bill must fulfill both the conditions that (i) it
is drawn in Bangladesh and (ii) it is payable in Bangladesh or drawn on person resident in
Bangladesh (even though payable abroad).  Any bill that does not fulfill either of the
conditions is a foreign bill. Thus, a bill drawn in Bangladesh, payable at a place outside
Bangladesh by a person resident outside Bangladesh and a bill drawn at a place outside
Bangladesh, but payable in Bangladesh are foreign bills.

Marine Insurance Policy

The loss or damage to goods during the voyage or shipment would affect any one or more
parties involved in the transaction, viz., the importer, the exporter, the shipping company and
the bank which has paid against the documents covering the goods. Marine insurance offers
the desired cover against loss of or damage to the goods during the transaction. It allows free
flow of international trade by absorbing an important uncertainty connected with it.

Marine insurance may cover the ship (hull insurance) or the goods (cargo insurance). The
consideration for which a marine insurance contract is undertaken is the ‘premium’.  The
insurance may be for either partial loss or total loss. The applicant must submit the insurance
cover note and the money receipt with other relevant documents to the advising bank.

Invoices

Various types of invoices are required in L/C. Brief descriptions of those invoices are given
below:

Commercial Invoice:

A commercial invoice is a statement containing full details of the goods sipped. The general
contents of a commercial invoice used in foreign trade are:

 Names and addresses of the seller and buyer;

 Details of goods shipped-quantity, quality, description and value;
 Packing details and packing marks;
 Price and amount payable by the buyer;
 Terms of trade-FOB, CFR OR CIF, etc;
 Details of freight charges, insurance premia and other chargers;
 Reference to the sale contract in fulfillment of which the shipment is made;
 Name of the vessel in which the goods are shipped; and
 Reference to the license number under which the import is made.

29
Proforma Invoice:

A Proforma Run contains all the details in a commercial invoice. The word 'profit run' is
different from the commercial inventory by appearing. This is not a sales proof. The
following operations may be required in the following forms:

It may be the basis of which the contract of sale is concluded later. When the product is sent
on a consignment basis, a profit invoice that is sent to the vendor's agent can be used only; It
acts as a guide for the price of the product the agent sells.
It may be used support a tender a sale contract

4.2.8 Export Procedure

Entering into an Export contract

In order to avoid disputes, it is necessary to enter into an export contract with the overseas
buyer. For this purpose, export contract should be carefully drafted incorporating
comprehensive but in precise terms, all relevant and important conditions of the trade deal.

There should not be any ambiguity regarding the exact specifications of goods and terms of
sale including export price, mode of payment, storage and distribution methods, type of
packaging, port of shipment, delivery schedule etc. The different aspects of an export contract
are enumerated as under :

 Product, Standards and Specifications

 Quantity
 Inspection
 Total Value of Contract
 Terms of Delivery
 Taxes, Duties and Charges
 Period of Delivery/Shipment
 Packing, Labeling and Marking
 Terms of Payment– Amount/Mode & Currency
 Discounts and Commissions
 Licenses and Permits
 Insurance
 Documentary Requirements
 Guarantee
 Force Majeure of Excuse for Non-performance of contract
 Remedies

Arbitration, It will not be out of place to mention here the importance of arbitration clause in
an export contract Court proceedings do not offer a satisfactory method for settlement of

30
commercial disputes, as they involve inevitable delays, costs and technicalities. On the other
hand, arbitration provides an economic, expeditious and informal remedy for settlement of
commercial disputes. Arbitration proceedings are conducted in privacy and the awards are
kept confidential. The Arbitrator is usually an expert in the subject matter of the dispute. The
dates for arbitration meetings are fixed with the convenience of all concerned. Thus,
arbitration is the most suitable way for settlements of commercial disputes and it may
invariably be used by businessmen in their commercial dealings.

4.2.9 Export Pricing and Costing

Export pricing should be differentiated from export costing. Price is what we offer to the
customer. Cost is the price that we pay/incur for the product. Price includes our profit margin,
cost includes only expenses we have incurred. Export pricing is the most important tool for
promoting sales and facing international competition. The price has to be realistically worked
out taking into consideration all export benefits and expenses. However, there is no fixed
formula for successful export pricing. It will differ from exporter to exporter depending upon
whether the exporter is a merchant exporter or a manufacturer exporter or exporting through a
canalizing agency. You should also assess the strength of your competitor and anticipate the
move of the competitor in the market. Pricing strategies will depend on various circumstantial
situations. You can still be competitive with higher prices but with better delivery package or
other advantages.

Your prices will be determined by the following factors:

 Range of products offered

 Prompt deliveries and continuity in supply
 After-sales service in products like machine tools, consumer durables
 Product differentiation and brand image
 Frequency of purchase
 Presumed relationship between quality and price
 Specialty value goods and gift items
 Credit offered
 Preference or prejudice for products originating from a particular
 Aggressive marketing and sales promotion
 Prompt acceptance and settlement of claims
 Unique value goods and gift items

The exports from Bangladesh is subject to export trade control exercise by the Ministry of
Commerce through Chief Controller of Export and Imports (CCI & E). No exporter is
allowed to export any commodity permissible for export from Bangladesh unless he is
registered with CCI & E and holds valid Export Registration Certificate (ERC). The Export
Registration Certificate (ERC) is required to be renewed every year. The Export Registration
Certificate (ERC) is to be incorporated on EXP forms and other documents connected with
exports.

31
4.2.10 Formalities and Procedure
1. Export Receipt L / C: Obtain export L / C form export issued by the importer.

2. Submission of export documents: After supplying the product to the exporter, all the
documents required by the collecting bank will be submitted.

3. Checking the export documents: After checking the document near the banker to verify the
documents according to the lock / C terms.

4. Discussion of export documents: If the bank accepts the document and gives the exporters
a standard draft and forward documents to provide bank called a compromise bank. If the
bank does not buy L / C, the bank generally acts as a collecting bank.

5. Revenue earning: This time the issuing bank payment is realized.

6. Report to Bangladesh Bank: According to the instructions of the Bangladesh Bank, the
bank should report the latest payment to the respective division of Bangladesh Bank.

7. PROGRESS PROJECT CERTIFICATE (PRC) Issue: To get cash assistant to the bank, the
supplier / exporter will have to issue the export certificate of export L / C.

4.2.11 Papers Requirement for new Export

 Export Realization Certificate (ERC).

 Trade License.
 Membership Certificate Form Chamber/ EPB.
 Account To Be Maintained With Bank.
 Export L/C Contract.
 EXP Form To Be Certified.
 TIN Certificate.
 VAT Certificate.
 Memorandum and Article of Association of the Company.
 Confident Credit Report to Be Obtained of the Importer.
 Registered Partnership Deed In Case of Partnership Concern.

32
4.2.12 Preparation of Exports Documents

 Bill of exchange or Draft.

 Bill of Lading.
 Invoice.
 Insurance Policy/ Certificate.
 Certificate of Origin.
 Inspection Certificate.
 Consular Invoice.
 Packing List.
 Quality Control Certificate.
 GSP Certificate.
 Photocopy-sanitary Certificate.

4.2.13 Export Financing

 Export Cash Credit (ECC).

 Packing Credit (PC)
 Back-to-Back Credit Facility (BTB).
 Foreign Documentary Bills Purchased (FDBP).

4.2.14 Processing and Opening of Back-to-Back Letter of Credit

An exporter desired to have an Import L/C limit under Back-to-Back arrangement. In that
case the following papers & documents are required:

 Full Particulars of Bank Account.

 Balance Sheet.
 Statement of Assets & Liability.
 Trade License.
 Valid Bonded Warehouse License.
 Membership Certificate.
 Income Tax Declaration.
 Memorandum of Articles.
 Partnership Deed.
 Resolution.
 Photographs of Al Directors.

33
On receipt of above documents and papers the Back-to-Back Letter of Credit opening section
will prepare a credit report. Branch must obtain sanction from Head Office for Opening Back
to Back L/C.

Back-to-Back Letter of Credit opened without Head Office concern because of valued clients
of the Bank. In that case an officer of Foreign Exchange Department will send a Post to the
Head

4.2.15 Export Cash Credit (ECC)

Export Cash Credit (ECC) is extended to the companies who are involved in exporting goods
and services. Export Cash Credit (ECC) is provided to procure raw materials, Packing List,
Wages, Salaries, Utility etc. the quantum of Export Cash Credit (ECC) is usually 75% of the
export L/C.

4.2.16 Packing Credit (PC)

Packing Credit (PC) is granted to export oriented industry usually garments industry to
finance their expenses for Utility, Salaries, Wages etc. the quantum of packing credit is
usually 10 % to 155% of the value of the export L/C.

4.2.17 Back-to-Back Credit Facility (BTB

Back-to-Back Credit Facility (BTB) is issued to import raw materials for export –oriented
industry usually of garments. The primary security of Back-to-Back Credit (BTB) is export
L/C usually the quantum of Back-to-Back Credit (BTB) L/C is 75% of the value of Master
L/C.

4.2.18 Foreign Remittance

This bank is authorized dealer to deal in foreign exchange business. As an authorized
dealer, a bank must provide some services to the clients regarding foreign exchange and
this department provides these services.

The basic function of this department are outward and inward remittance of foreign
exchange from one country to another country. In the process of providing this
remittance service, it sells and buys foreign currency. The conversion of one currency
into another takes place an agreed rate of exchange, which the banker quotes, one for
buying and another for selling. In such transactions the foreign currencies are like am
other commodities offered for sales and purchase, the cost (convention value) being paid
by the buyer in home currency, the legal tender.

34
4.2.19 Remittance Procedure of Foreign Currency
There are two types of remittance:
1. Inward remittance
2. Outward remittance.

Inward Foreign Remittance:

Inward remittance covers purchase of foreign currency in the form of foreign T.T., D.D,
and bills, T.C. etc. sent from abroad favoring a beneficiary in Bangladesh. Purchase of
foreign exchange is to be reported to Exchange control Department of Bangladesh bank
onForm-C.

Outward Foreign Remittance:

Outward remittance covers sales of foreign currency through issuing foreign T.T. Drafts,
Travelers Check etc. as well as sell of foreign exchange under L/C and against import
bills.

4.2.20 Formalities for opening foreign currency (FC) Account:

The AD may without prior approval of the Bangladesh Bank open Foreign Currency
(FC) account in the name of:
1. Bangladesh national residingabroad.
2. Foreign nationals residing abroad/ in Bangladesh and also foreign firms
3. Registered abroad and operating in Bangladesh and abstract foreign
missions and their expatriate employees.
4. Resident of Bangladesh nationals working with the foreign / international
organization operating in Bangladesh provided their salary in paid in
foreigncurrency.
Foreign exchange earned through business doves or service rendered in Bangladesh
cannot be put into theseaccounts.
No payment in foreign currency (FC) may be made to any resident in Bangladesh out
of the foreign currency (FC) account.
All citizens of Bangladesh and other persons are residing to Bangladesh who became
the owner of any foreign currency (FC).

35
Papers required:

 Application duly billed in and signed.

 Photograph (two copies).

 Passport photocopy.

 Work permit from board investment. (In case of foreign nationals).

36
 Chapter: 5

Learning Points, SWOT Analysis

and Findings
Learning’s

Staying the internship period of 3 months at Al-Arafah Islami Bank – Islampur Branch as an
Internee was extensively experiencing. I have gone through a lot of new situations,
experienced a
very new environment and learned about professional life.

5.1 Learning’s from Organization

In the processing of collecting, gathering, synchronizing information and preparing this

report; I
have learned many banking procedures, facts such as Account opening, closing, Profit taking,
transferring also dealing with different types of customers & situations.

5.2 Learning’s from Internship Program

The learning’s form Internship program was a new experience since such event is very new
in a
Student’s life. I have learned to study a bank’s documents and prepare an affiliation report.
Within the period, I had to deal with different designated employees & stuffs of the branch
and
several types of clients. I faced several types of situations, some made me happy, some sad,
some
anger etc. Through this ups and downs, I have come to know what is the environment of an
office and how to deal with it. This experience surely made me prepared for my next
corporate life.

5.3 SWOT Analysis of Dhanmondi Branch:

SWOT analysis provides an opinion and adjustment whether the organizations current
position is satisfactory or not.

37
SWOT at a glance of Dhanmondi Branch

Strength:
Human Factor

Opportunity: Threats:
Getting new
clients SWOT Robbery

weakness:
High cost of
Fund

Strengths:

 Wide image.
 Enthusiastic Employee.
 Excellent Management
 Human factor and innovation power.
 Satisfactory Environment

Weaknesses:

 It has high-cost fund.

 The advertising and promotional activities of this branch are up the mark.
 It has highly exposed dependency on term deposit.
 They have not set up proper network system.
 The bank has limit ATM service.
 The Division is not strong because the branch put due importance to utilization of
technology-based service to the customers.
 Infrastructure Cost.

38
Opportunity:

 Complacency among rival firms.

 Getting new clients.
 More physical presence.
 Maintain a good relationship with client.

Threats:

 Lacking of customers awareness regarding Islamic banking

 Increase number substitute service in the market.
 Stiff competition.
 Lake of enough technology for the branch.
 Certain Bangladesh Bank’s rules and regulations.
 Rude Customer.
 Robbery.

5.4 Overall Findings:

They have not sufficient efficient employees to operate different department in the
Branch’s they should increase efficient employees in different department. 

Staff meetings and departmental meetings at the branch level does not hold or very few
which is very essential to develop service quality as well as problem solving. But this
practice is very few. So it may create major problem in future. 

Technology that they are using for their banking system is not up to date. 

There is a gap between the customers and bankers. Customers are unaware about the
moral of Islamic Banking System. Sometimes they are not familiar with the rules of
Islamic Banking. 

Advertising and promotion are the weak points of Al-Arafah Islami Bank Limited.
Islampur
branch is also outers‟ promotional service.

Some international and local savings bonds give high rate of returns. AIBL does not buy
these because it is against the rules of Islamic Banking System. So the branch is also
following the rule.



39
  Chapter-6
Recommendation and Conclusion

Recommendation

 AIBL should concentrate in increasing its profit earning capacity.

 It should develop effective marketing strategy to attract new customers.
 Raising the capital, statutory reserve and increase the investment.
 The number of branches should be increased.
 Expand and diversify customer base.
 Upgrade Online Banking.
 Recruit more skilled employees regularly.
 Bank should introduce independent ‘Marketing Department’
 Few branches are not under online banking system, so all the branches should
confirm on line banking system.
 More meetings, seminars, symposiums and get-together should be organized by
the Branches to develop the awareness among the clients of the Bank about
Islamic Banking and its advantages.
 Ensure stable dividend.
 Ensure high level customer service.
 The Bank should follow Islami Sharia strictly in every of its operation.
 Bank should introduce ATM system.
 Should introduce one-stop service Centre.
 Bank should increase their office space and take more care in interior decoration.
 Bank should increase their office space and take more care in interior decoration.

40
Conclusion

The financial sector of our country is largely depended on banking sector. Over the
decade the banking business has been rising to the top of all. In this competitive
banking business environment, only excellent services are expected to sustain in the
industry.

Although the growth of the bank was satisfactory over previous years, the growth in
foreign exchange business is not satisfactory. Especially in remittance business, the
bank is lagging behind with other banks. The target customers of the banks are low-
end segment of the market & the IT sector of the bank is very poor.

To retain customers & attract new customers, the bank has to establish ATM network
immediately because people now want to bank even at midnight.

The study of the foreign exchange activities of Al-Arafah Islami Bank Ltd has
facilitated me with experiencing a vast practical knowledge of banking operation &
corporate work environment.

Bibliography
41
Report, Journal:

I. Annual report of AIBL2017-2021

II “A Journal of Islamic Banking” published by AIBL

Publications:

III Manuals & circulars of Al-Arafah IslamiBank

IV Several Booklets from AIBL

Internet:

Website: http//www.al-arafahbank.com
Website: http//www.wikipedia.org
Website: http//www.bb.org.bd
Website: http//www.forbes.com

42